RBI Strengthens Foreign Exchange Reserves Amidst Global Turmoil

India's foreign exchange reserves rose substantially during 2024–25, to about 688 billion dollars as of April 2025. As the Reserve Bank of India's (RBI) Annual Report for the year 2024–25 stated, it was a solid rebound in the country's external financial position.

This rise in the reserves came at a time when the world had been grappling with uncertainties such as geopolitical tensions, disruptions in trade, and unpredictability of foreign investment. The RBI drew upon these reserves as buffers to counter the Indian rupee and manage pressures in the foreign exchange market when needed.

The steady increase in reserves also suggests the country's improved current account balance, strong remittance inflows, and resilient services exports. The RBI ensured that not only were the reserves priced high but also sold and available for hand during a crisis period.

Diversification As A Key Strategy

One of the major areas of focus for the RBI in 2024–25 was reducing risks related to external economic and political changes. To this end, it followed a policy of diversification in dealing with foreign exchange reserves.

The RBI invested in a range of currencies, asset classes and markets such that it did not align itself with the fortunes of any one economy or geography. This helps to reduce exposure to shocks in case of global sanctions, economic embargoes, or asset freezes.

The report also points towards mounting sensitiveness on the part of central banks all over the world towards risks of 'weaponisation' of reserves, used to mention embargoes or access issues arising due to geopolitical tensions. To counter this, India has gone on to diversify its investment more and more towards safer and accessible locations.

Boost From Forex Operations

Along with operating reserves, the RBI also made more from its foreign exchange operations. Selling and purchasing of foreign currencies resulted in higher gains during 2024–25 and contributed to the overall income of the central bank.

These gains added to the financial power of the RBI, allowing it to reinforce market confidence and nudge the currency market whenever required. These interventions are crucial in reducing volatility and preventing sudden spikes in the value of the rupee.

Surplus To The Government

Because of enhanced profitability due to reserve management and other sources, RBI was able to make a record amount of dividend to the government. For 2024–25, the transfer was Rs 2.69 lakh crore—almost a 27 per cent increase in government dividends paid by RBI in FY24, which stood at Rs 2.1 lakh crore.

The transfer provides the government with more fiscal room to support expenditure without contributing to borrowing. It also reflects the healthy financial position of the central bank and its effective handling of its responsibilities.

Focus On Financial Stability

The management of foreign exchange reserves remains one of the RBI's most important tools for ensuring macroeconomic and financial stability. RBI uses such reserves to handle any unexpected capital outflows or balance the payment pressures. Such buffers are crucial in preserving investor confidence in an unpredictable global climate. Additionally, they allow for shock absorption without seriously weakening the rupee or upsetting the local economy.